Minimum Wage War Continues

NEW YORK (MainStreet)  On December 31, New York State will raise the minimum wage from $7.25 an hour to $8.00. This is the first of three increases that will happen over a span of three years capping the minimum wage out at $9.00 in 2015. Once this increase takes effect, New York will become one of at least 20 states (along with the District of Columbia) with a minimum wage higher than the federal rate. This raise in New York is part of a greater national debate. It is a conversation that hinges on what's best for American companies and the fact that the cost of living is on the rise in light of inflation.

According to the Bureau of Labor Statistics in 2012, there were 75.3 million workers in the United States age 16 and over paid at hourly rates, representing 59% of all wage and salary workers. Among those paid by the hour, 1.6 million earned exactly the prevailing federal minimum wage of $7.25 per hour. About 2 million had wages below the federal minimum. Together, these 3.6 million workers with wages at or below the federal minimum made up 4.7% of all hourly paid workers.

Currently, many people who earn the minimum wage are enrolled in government entitlement programs such as welfare, food stamps, and Medicaid. That can be exaggerated in metropolises with a high cost of living.

"HRA administers programs that provide over $30 billion in cash, food stamps and Medicaid benefits for low income New Yorkers," said Carmen Boon from the New York City Human Resources Administration. There are 1,850,432 New Yorkers people enrolled just in Supplemental Nutrition Assistance Program (SNAP).

Programs like SNAP are funded by taxpayers, who are bearing the burden of many of these employees as well as the unemployed. With these figures and facts, raising the minimum wage substantially seems logical. Phillip Wilson, president of the Labor Relations Institute, explained the root of the issue.

"There is the shift of our economy away from manufacturing and into service," he said. "The basic thrust of Big Labor's argument is that every job should at least pay someone enough to get above the poverty line, no matter what that work is valued at by the market. Big Labor's tactic is to try to embarrass and harass employers into raising wages above market rates, and barring that trying to force them to do so through legislation. Creating media and PR events is one of the things unions are very good at. Economics not so much. While this whole effort sounds fair and just, it ignores basic economic realities."

Wilson continued to speak about the economic nuances that inform the wages.

"Making hamburgers or stocking shelves are not very valuable skills," he said. "Forcing businesses to pay for them as if they are has multiple consequences. It is a big cause of outsourcing and technological innovation -- replacing human labor with robots or computers. If you doubled the minimum wage you would see massive shifts toward automated ordering, robotic stocking, self-checkout, etc."

That, in turn, would cause massive unemployment in these entry-level jobs and would dramatically increase poverty, Wilson said. A significant increase in the minimum wage is a huge bill for average taxpayers. It is a bigger bill than we are paying now with entitlement benefits. Wilson thinks that taxes will go up increasingly as more people lose jobs while businesses adapt to a changing marketplace to survive.

Economist and Georgetown professor Harry Holzer concurs with Wilson. When asked if a dramatic hourly wage increase would lead to layoffs and more robotics, he said "the primary concern about raising the minimum wage is that it will reduce employment opportunities, by raising the "price" that firms have to pay for workers."

The research is mixed, with estimates of employment losses generally small and sometimes zero. But some of the local proposals recently for minimum wage increases are so large that effects on employment could be larger.

So what can be done? There are some companies out there offering more benefits to their entry level workers than others.

Starbucks is a great example of that. While Starbucks is a company that may be become more mechanized over the next 10 to 20 years, the employees it has today are given a comprehensive benefits package that makes sense. They offer benefits such as eligibility for merit increases every six months, 401(k)s that match up to 6% of a given salary, tuition reimbursement and health insurance for anyone who works over 20 hours a week covered at 70%.

There are certain companies out there despite the charge to the future who are taking their own initiative toward social responsibility while making profits. The issue of the minimum wage is essentially a Catch-22. The companies involved in this debate who are not socially responsible are leaving their employees dependent on taxpayers while taking gains. However, this cannot be easily corrected, because too much competition exists now for these employees due to innovation and globalization.